Significant New Tax Legislation Becomes Law

By Stanley Rose July 9, 2025

On July 4, 2025, President Trump signed into law one of the most wide-reaching and controversial pieces of tax legislation in recent history.  It brings to fruition several of Trump’s campaign promises and extends many otherwise expiring provisions of 2017’s Tax Cuts and Jobs Act (“TCJA”), passed during his first term in office, which itself was one of the biggest tax law changes seen in decades.

BNN’s coverage

At around 900 pages, the legislation’s reach is too deep and broad for one piece to do it justice.  To best serve our readers, we present this article summarizing many of the bill’s features, and we are working on at least 10 additional articles, some of which are published simultaneously and some that will soon follow. Each one represents a deeper dive by one of BNN’s tax experts into a prominent topic in the new law, accompanied by insights and discussions of the law’s impact.

An index to the detailed analysis articles is shown below.

Index to deeper-dive articles

1. Individual taxes
2. State and local taxation/pass-through entity tax
3. Business taxes
4. Payroll, compensation, and benefits
5. Energy credits
6. Tax-exempt entities
7. Opportunity Zones
8. Research & development costs (Sec.174)
9. Excluding gain from sale of stock (Sec. 1202)
10. Foreign/international provisions

Background – and the law’s contentious path

One cannot escape any discussion on the new legislation without seeing frequent references to the TCJA.  This is necessary because the new legislation is very heavily devoted to extending features created by the TCJA, including many that were set to expire next year which now have been extended further, made permanent, and/or otherwise modified.

The new law was formally named the One Big Beautiful Bill Act until lawmakers successfully argued that the title violated congressional rules and stripped it from the bill.  It technically is now named either H.R. 1 (House of Representatives bill #1) or An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14.

Observation: Title-stripping is a favorite tactic of both sides of the political aisle, where one side will create a self-serving or even inflammatory name, and the opposition deploys a somewhat obscure rule to delete it.  Both sides are guilty.  Republicans did so with President Biden’s “Inflation Reduction Act” three years ago, and Democrats did it with Trump’s “Tax Cuts and Jobs Act” eight years ago.  But the technical names are clunky, and generally lose out to the colloquial titles even once stripped.  In spite of its defrocking, and simply for ease of use and recognition, we’ll refer to the current legislation herein as BBB.

Often when one political party controls both chambers of Congress and the White House, some bills are crammed down the minority party’s throat using a legislative path known as “reconciliation.”  There are many tighter-than-usual rules that must be followed if a bill takes that path, but if met, it allows the majority party to advance a bill with barely over 50% support rather than the standard 60% that is effectively needed.  A primary rule is that the bill’s features must have some fiscal connection, but they also cannot disrupt the budget for more than 10 years.  This explains why so many tax-related laws were set in motion with an expiration date of 10 years or less.

This law followed the reconciliation path, and in doing so, ignored most of the input of Democrat lawmakers.  It also includes significant measures that unravel, like a sweater, numerous features set in motion by President Biden’s 2022 Inflation Reduction Act.  For example, it dramatically accelerates the expiration of many clean energy credits that were only a few years into a 10-year sunset window of their own.

Observation:  Many of our clients have installed heat pumps and taken advantage of a federal tax credit that defrays up to 30% of the costs.  For some, the net price reduction provided by the credit makes the difference between installing it or not.  When created, the credit was set to expire in 10 years (7 years from now).  It now will expire less than 6 months from now.  Based on how backed up contractors often are, this bill’s sudden pruning could mean some interested parties have missed their window.

The bill also unravels expansions of Medicaid that were put in place during President Obama’s administration.  Medicaid is a rather unusual hybrid between federal and state government, with the core structure prescribed by Washington but much of the details and administration left to the individual states.  This bill’s legislation may not pull the plug on states’ administration, but it dries up federal funding for some of it, including for some programs if new work requirements are not met by the beneficiary/participants.  This will force the states to cover those costs or see participants drop from its ranks.

This bill also adds even more money to the country’s ballooning national debt – a fact that caused many in the majority and minority party to oppose it.

All of this is shared to explain just a few reasons why this bill is so controversial.

Observation:  It is unfortunate that our nation’s lawmakers cannot find more opportunities to meet in the middle, and that our national leaders cannot avoid constantly sniping at one another.  Some observers think it is a sign of the times.  It does seem to be worsening, but I suppose we should recall that a couple hundred years ago things routinely got so snippy that public duels were not uncommon, and in fact, the nation’s first Treasury Secretary died in one.

Individual features

Individual income tax rates:  Before TCJA, there were seven brackets ranging from 10% to 39.6%.  TCJA also deployed seven brackets, but while they, too, start at 10%, they top out at 37%, and the brackets in the middle generally provide lower rates for larger swaths of income.  The rates would have reverted to pre-TCJA levels in 2026 unless action was taken.  The TCJA rates are now permanent, and the brackets are indexed for inflation.

Individual standard deductions:  The TCJA greatly increased standard deductions, but only temporarily.  That, combined with the SALT cap (discussed later) allowed many filers to forgo using detailed itemized deductions and opt instead for the fixed-amount and simpler standard deduction (taxpayers can choose between the larger of the two amounts).  The new law makes the increases permanent, and they are indexed for inflation.

Exemptions:  The TCJA eliminated personal exemptions, again temporarily.  The BBB makes the elimination permanent but throws a bone to those aged 65 and older, allowing a new bonus deduction of $6,000.  This deduction phases out for single filers with incomes of $75,000 or joint filers with incomes $150,000.   The exemption itself expires completely after 2028.

Child tax credit:  This credit historically has allowed parents a $2,000 credit for children under the age of 17 and an additional credit of $500 for certain other dependents, reverting to $1,000 and zero, respectively, after this year.  The new law makes the credits permanent, increases the $2,000 credit by $200 to $2,200, indexes the credit for inflation, and rolls out the requirement that SSNs be provided to qualify.

Charitable contributions:  For those who do not itemize deductions, a new deduction for charitable contributions is provided after 2025, maxing out at $1,000 or $2,000 depending on filing status.  However, for those who do itemize deductions (which allows a much higher deduction for contributions), the new legislation encourages sizeable contributions by allowing deductions only to the extent the total exceeds 0.5% of the donor’s income.  (For example, a donor with income of $500,000 who itemizes deductions will receive no charitable contribution deduction until the year’s contributions exceed $2,500, and the deduction does not include that first $2,500.)  On the other end of the spectrum, historical caps on the deduction’s ceiling remain in place, allowing a deduction as high as 60% of a person’s income.  However, for individuals in the top bracket, the deduction loses a bit of its potency.  Here’s how:  The top tax bracket begins at income levels of around $626,000 (or $752,000 for joint filers).  That is where the 37% rate begins and the 35% rate ends.  A portion of the BBB is devoted to ensuring that the contribution deduction does not fully offset income residing in the top 37% bracket; the deduction instead is administered as if the top rate was 35%, offsetting only a portion of income, thereby diminishing the deduction somewhat for those in the highest bracket.

Moving expense deduction:  The TCJA suspended a previously-existing moving expense deduction for years 2018-2025, but it was to reappear like a whack-a-mole beginning in 2026.  The new legislation, however, whacked the deduction permanently, except for members of the U.S Armed Forces, who can still qualify.

Mortgage interest:  Historically, mortgage interest associated with debt incurred to acquire a qualified residence has been allowed as an itemized deduction, but only on the first $1,000,000 of such debt.  Home equity interest (on loans for which the home is collateral, but proceeds were spent on something else, like buying a snowmobile or paying for a vacation) was also deductible, subject to a different, much lower cap.  The TCJA temporarily dropped the $1,000,000 debt cap related to mortgage interest down to $750,000 and eliminated the interest deduction related to home equity loans.  The new law makes the $750,000 cap permanent, and it retains the elimination of home equity loan interest.

Casualty loss deduction:  The TCJA temporarily narrowed a deduction applicable to casualty losses (damage to property, commonly experienced during storms or other natural disasters) to include only those for which the federal government declared a national disaster.  The BBB makes this narrowing permanent, but also simultaneously widens it to include disasters declared by states.

Observation:  Tax policy is interesting, at least to tax nerds like my colleagues and me.  Years ago, this deduction covered “casualties” on a smaller scale, meaning that it could be limited to the home of one taxpayer – the lone victim of an incident. (The loss must be somewhat large compared to the taxpayer’s income – that restriction is found in the old and new rules.)   Now (and starting with TCJA), Congress and the IRS no longer will be bothered with pesky one-off deduction claims, because only widespread damage will warrant a federal or state disaster declaration that in turn will qualify the damage for this deduction (generally there must be many victims of one incident).  So if you arrive home after attending a little league game with your family only to discover that a huge boulder rolled down the hill directly through your home, completely pancaking it, you probably are out of luck on the casualty loss qualification front.  But if the same thing happened to all your neighbors (from the same rock or a bunch of that rock’s buddies), you might be in business.

Miscellaneous itemized deductions:  The TCJA temporarily suspended the use of a long list of itemized deductions that provided benefits only to the extent that their amounts collectively exceeded a threshold based on income.  The BBB makes that suspension permanent but creates an exception allowing certain expenses incurred by teachers to be deducted.

Tax-free tips and overtime pay:  An entirely new deduction (actually an income exclusion) is created.  It eliminates federal income taxes on the first $25,000 of qualified tips and the first $12,500 of a person’s overtime pay.  Both are available whether filers use itemized deductions or standard deductions, and both benefits are phased out at certain income levels.  Both benefits may be used by married or unmarried taxpayers, but the tip exclusion is allowed to married taxpayers only if they file jointly.

Auto loan interest:  Another new feature that has no roots in the TCJA allows a new deduction for interest paid on qualifying personal vehicle acquisitions.  The deduction is capped at $10,000 and is phased out based on income, with the phaseout beginning at income of $100,000 (or $200,000 for joint filers).  It applies only to vehicles assembled in the U.S. and acquired between or during 2025 through 2028, and only if that vehicle serves as collateral for the loan.

AMT exemption:  The TCJA increased the AMT exemption, and in doing so, reduced the number of taxpayers subject to the Alternative Minimum Tax (“AMT”).  It did so temporarily, but the BBB makes that change permanent, with some modifications.

Observation:  AMT acts like it sounds; it is an alternative method of computing a person’s income tax liability.  It is a required computation that was designed to impose some level of tax on individuals (generally those with somewhat high income and flexibility with the types of income they generate) whose fact pattern allowed sufficient deductions that they incurred little or no “regular” income tax.   It is a messy, complicated calculation.  It also represents somewhat of a waste of time, because those who do incur AMT (which is an addition to their regular tax) in one year often can in a later year recoup it by deducting that previously-paid AMT as a credit.  So it often really represents an absurd, temporary time-shifting of a person’s net payment of the same tax that would be owed if AMT didn’t exist.  The exemption limits this nonsense to a dull roar.

Savings accounts for children:  The bill introduces an entirely new program that started in the House with language describing “MAGA accounts.”  The feature emerged from the Senate and into the final law sporting a new name: the “Trump account.”  This new feature will allow parents to contribute $5,000 a year to an account that will grow in a tax-deferred manner until their child withdraws it for a qualifying expense after turning age 18.  Qualifying expenses include education, down payment on a first home, or funding of a new business.  Any growth in the account will be taxed at reduced capital gain rates if used for qualifying expenses but will be taxed at ordinary rates if used for any other purpose.  To encourage use of the accounts, the government will deposit (although parents can opt out) the first $1,000 from Treasury coffers for any child born between January 1, 2024, and December 31, 2028.  To qualify for this “baby bonus,” a child must be a U.S. citizen and have a valid Social Security Number.

 Section 529 Plan expansion:  Section 529 plans have long represented a way to contribute money to a plan established for a child’s education, whereby the funds can grow tax-free to be withdrawn and spent on qualifying educational costs, including K-12 tuition and higher education costs.  The BBB increases the amount that can be withdrawn annually, and also expands the types of education that qualify by allowing distributions for books, materials, tutoring, online resources and homeschooling software.

 Gift and estate tax exemption:  The TCJA greatly increased the amount a person can give away during life or at death without incurring an estate or gift tax.  The cap was indexed for inflation and currently sits at $13.99 million but was scheduled to expire at the end of 2025, dropping off like a cliff back to much lower levels that existed prior to the TCJA.  With BBB, the TCJA increase and inflation-indexing are made permanent. It also kicks off that indexing by resetting the exemption upward to $15 million for 2026.

Observation:  Estate planning is complex and expensive.  Arguably those with the most to protect also are best positioned to pay for sophisticated planning.  But what they shouldn’t have to do is redo that planning repeatedly due to a constantly-moving landscape and lawmakers’ fickle whimsy.  The estate and gift exemption has been changed numerous times, up and down, often requiring updates to estate planning that should be closer to a one-and-done proposition.  The scheduled drop in 2026 created significant uncertainty because most believed something would be done, but what, and when, and how much?  Nothing is stopping a future dalliance of Congress from undoing this, but in the meantime, the new permanence feature of the exemptions will make it possible for practitioners to be able to conduct some long-term planning for clients that isn’t so inadvertently and wastefully short-lived.

SALT cap:  The TCJA created a cap of $10,000 on the amount of state and local taxes that can be included annually as an itemized deduction on an individual’s income tax return.  The BBB raises that cap to $40,000, but only through 2029, after which it reverts back to $10,000.  For filers with incomes over $500,000, the cap is subject to a phaseout that shrinks the deduction.

Observation:  In the years since its 2017 implementation, many states created methods by which owners of pass-through entities (partnerships, LLCs, S-corporations) could sidestep this cap, and instead deduct the full amount of state tax – at least the portion attributable to the owners’ pass-through income.  States did so by offering an election to impose a pass-through entity tax (“PTET”).  As a state tax assessed on earnings at the entity level, the deduction is allowed in full, bypassing the cap, which is applied only on individual tax returns.  Predictably, Congress did not like this creative defanging of their law, and while the BBB was incubating, House members and Senators hatched numerous plans to shut down these end-runs created by the states.  Those plans apparently fell to the cutting room floor, though, as the final version is very oddly silent on restrictions against PTET.  I don’t imagine that the sound of Congress whistling through the graveyard will be the last notes we hear of this song, though.

Business tax features

Qualified Business Income deduction (“QBI”):  Created by the TCJA, the QBI deduction is equal to 20% of certain pass-through income earned by owners of S-corporations, partnerships, and LLCs.  The deduction is subject to numerous, complex limitations and was scheduled to expire after this year.  The BBB makes the deduction permanent and adjusts some intricacies of the computations.  It also creates a flat minimum deduction of $400 for certain taxpayers who are active in the business that gives rise to the deduction.

Business interest deduction:  The TCJA imposed a limit on the amount of business-related interest that can be deducted each year.  Greatly oversimplifying a dizzying array of computational rules, it caps the deductible interest at 30% of so-called Adjusted Taxable Income (“ATI”).  Any nondeductible portion may be carried over to future years, for possible deductibility then.  For the first few years of its life, taxpayers could add back depreciation and amortization to their regular income to arrive at ATI.  This had the effect of producing a larger threshold and in turn a larger deduction.  But pursuant to TCJA rules, the depreciation and amortization addback ceased in 2022, resulting in a smaller ATI and more limited deductions.  The BBB reinstates that addback beginning with 2025.

Section 179 write-off:  Entering 2025, taxpayers were able to expense up to $1.25 million of qualifying assets placed in service during the year, with that benefit beginning to phase out once taxpayers reach outlays of $3.13 million for such assets placed in service in that year.  These amounts are indexed for inflation, increasing somewhat annually.  With the BBB, the thresholds remain indexed for inflation, but are reset with much higher numbers, with write-offs of up to $2.5 million for 2025 that don’t begin to phase out until total outlays reach $4 million.

Bonus depreciation:  Bonus depreciation represents another way (in addition to Sec. 179, described above) to currently deduct costs of certain fixed asset acquisitions.  This deduction wasn’t new with the TCJA, but it set in motion a scaling-down of the benefits, which started at 100% of the costs, but by 2025 allowed only a 40% deduction, followed by 20% in 2026, and nothing for 2027.  With the BBB, this benefit is both made permanent and restated to a 100% deduction.  However, it does so oddly beginning with outlays made on or after January 19, 2025.

Observation:  Neither the Sec. 179 deduction nor bonus depreciation represents true, incremental deductions.  Instead, they both represent timing shifts.  The types of costs encompassed by these deductions have always remained eligible for “regular” depreciation, whereby the costs are deducted over time, over the tax lives of those assets – often 5, 7, or 15 years.  The rationale for regular depreciation is that it spreads the deduction over what arguably is the useful life of the asset.  The rationale of 179 or bonus could be seen as encouraging capital investment by matching the timing of the deduction with the timing of the outlay for the asset.  These are acceleration tools, nothing more.

Special depreciation for Qualified Production Property:  This entirely new deduction will allow immediate 100% deduction of the costs of building or buying commercial real property in the U.S. that is used for manufacturing, agriculture, chemicals, or refineries.  It shares bonus depreciation’s curious January 19, 2025, kick-off date, and expires at the end of 2030.

Observation:  This is a very potent benefit.  It acts like the Sec. 179 and bonus depreciation deductions by accelerating deductions into one year, but it is different in that Sec. 179 and bonus depreciation benefits generally apply to personal property with a short depreciable life rather than real estate which has a long life.  We are used to seeing equipment with a 7-year life written off in one year, while a building is depreciated over as many as 39 years.  In other words, the beneficial compression has been small (7 years of deductions crammed into 1).  With this new feature, the compression is huge (39 years into 1).  It remains, though, an acceleration tool of timing, rather than an incremental deduction:  One dollar spent, one dollar deducted.

Form 1099 reporting:  For years those who, in their capacity running a business, made payments to a service provider who was not an employee, have been required on an annual basis to file IRS forms in the 1099 series to report those payments. The filing requirement kicked in only if payments to a recipient reached or exceed $600.  With the new legislation, the threshold beginning with payments made in 2026 is raised to $2,000, and it will be indexed for inflation.

 R&D costs:  The TCJA forced all research costs to be capitalized, rather than deducted when incurred as had been allowed in the past.  The capitalized costs could then be amortized over 5 years for domestic costs or 15 years for foreign costs.  The BBB makes several major changes:  (1) Domestic costs beginning in 2025 will become currently deductible (but costs incurred outside the U.S. will remain subject to capitalization).  (2) All taxpayers may elect to expedite amortization of domestic costs that currently are in the amortization regime.  (3) “Small” taxpayers with revenues of $31 million or less can apply the new ability to immediately deduct domestic costs retroactively, essentially undoing the previous capitalization.

Observation:  The R&D credit and the deduction of R&D costs are two distinct things.  A credit offsets tax dollar for dollar, as opposed to a deduction that merely reduces the pool of income subject to tax.  The so-called R&D credit remains intact through BBB’s changes, and although the credit is based on similar and somewhat overlapping expenses, it should not be confused with the R&D deduction and its amortization regime.  The TCJA surprised many taxpayers, because they mistakenly believed that if they didn’t qualify or bother to take advantage of the credit, they would not be impacted by the need to capitalize R&D costs when those new rules were put in place in 2017, thereby curbing their expenses.  Also surprising to many was that the pool of costs subject to capitalization was much broader than the pool of costs eligible for the credit computation.  The BBB rules undo the impact of these surprises, other than for foreign outlays.

Qualified Opportunity Zones:  Under some rather complex rules, taxpayers investing in economically distressed areas described as Opportunity Zones (“OZ”) can sidestep paying tax on capital gains, but only if they hold that investment for long enough (generally 10 years).  This benefit was scheduled to expire after 2028.  The BBB creates a permanent OZ program starting in 2027.  It also confirms or adjusts a number of the existing program’s eligibility and designation criteria.

Charitable contributions by corporations:  Taxable corporations (Subchapter C-corporations) have long been subject to a limitation that caps their deductions for charitable contributions by disallowing amounts that exceed 10% of taxable income.  Any disallowed excess may be carried over for potential deduction in any of the next five years, subject to the same 10% of income cap in each of those years.  That restriction remains, but the BBB introduces a floor to go along with that ceiling:  Beginning in 2026, contributions are deductible only to the extent they exceed 1% of taxable income.  In other words, only deductions that live in the bandwidth between 1% and 10% of income are currently deductible.

Observation:  Contributions taller than the ceiling are always eligible for the 5-year carryover.  But contributions shorter than the floor are variable.  In years where overall contributions do not exceed 10%, the layer residing between zero and 1% is permanently lost.  However, in years where contributions do exceed 10%, the excess over 10% and the portion under 1% both may be carried over.  Thus, even with a provision that delivers some stinginess, a measure of generosity is awarded by Congress – but only to corporations who are, themselves, generous enough.

Energy related features

A number of energy related credits currently exist, some with various expiration dates several years in the future.  To put it mildly, the Big “Beautiful” Bill acts very ugly toward these features, many of which were put in place or enhanced by President Biden’s Inflation Reduction Act.  Credits on the chopping block include the Residential Clean Energy Credit, which allows a tax credit as high as 30% of qualifying residential expenditures made for heat pumps, solar water-heating or electricity-generating property, and wind energy property.  These credits were scheduled to last through 2032, but they now will die unless the underlying property is placed in service by the end of 2025.  Other existing benefits include the Energy Efficient Home Credit, which was also set to expire in 2032, and will now expire at the end of this year (potentially later, if construction began by mid-May of this year).  There are many other provisions that are being terminated years before their previously-scheduled ending date, and these will be discussed further by Dan Gayer in a related article.

International features

The international tax features in the new legislation (and the landscape itself that the laws apply to) are complex enough that they warrant their own discussion.  The law changes impact numerous areas including foreign tax credit computation, rewired rates and rules related to foreign-derived intangible income (“FDII”) and global intangible low-tax income (“GILTI”), and adjustments to the base-erosion and anti-abuse tax (“BEAT”).  It dropped, however, in final negotiations, features designed to punish those associated with countries that impose what previous drafts of the bill described as “unfair foreign taxes.”  More details on the foreign provisions are discussed in an article written by Jiten Kariya.

State income tax impact

Readers are cautioned that this article covers only the federal tax impact of this (federal) law.  It does not attempt to cover its applicability to state income tax rules.  States that impose income taxes usually use some measure of federal income as their starting points and have a variety of ways they react to federal law changes.  Some states’ rules conform automatically to federal changes.  Others conform to federal laws as of a specific date, and those states might ignore the BBB changes until and unless their legislators decide to conform down the road.  Both categories of “conformity” generally are accompanied by numerous exceptions.  So other than for states that apply blanket, automatic conformity, states’ reactions to this month’s federal legislation will be in flux for a while.

Conclusion

The so-called “Big Beautiful Bill” easily is the most significant tax legislation since 2017’s Tax Cuts and Jobs Act.  It stretches the utility of the TCJA by extending its terms, often indefinitely.  But it also butchers many features of the Inflation Reduction Act, primarily by dramatically shrinking the lifespan of its energy-related provisions.

This article does not attempt to cover every feature of the bill, and the ones it does cover are addressed only as an overview. Because this legislation’s reach is both deep and broad, we encourage readers who want more detail to use the index provided at the front of this article, or the links scattered throughout it, to access more coverage and insights by this author’s colleagues.

For more information, please contact your BNN tax service provider at 800.244.7444.